Organizational Theory and Design: Organisation Theory - 1 | Management Optional Notes for UPSC PDF Download

Introduction

• We are born into organizations, receive education from them, and a significant portion of our lives is spent working for them. An organization is a coordinated social entity formed to achieve common goals. It involves identifying and grouping activities, establishing authority and responsibility relationships, and defining the interrelationships of organizational activities. 
• Essentially, an organization comprises individuals working together to attain shared objectives. Different theories, such as closed, open, and dynamic systems, have been proposed to explain organizations. Traditionally, organizations were seen as closed systems unaffected by the external environment, with emphasis on designing effective structures for smooth goal attainment. Modern perspectives, however, recognize the environment as integral, requiring organizations to adapt. 
• The open system view sees organizations as social systems with independent and interrelated subsystems. Human beings are closely intertwined with organizations, deriving significant benefits from them. Success in organizations results from well-coordinated efforts of individuals, allowing them to enhance their abilities and gain advantages from organizational entities. This unit explores the concepts, principles, and theories of organizations, also addressing contemporary issues in organizational theory.

Concept of Organisation

• Organizing is the process of identifying and grouping activities, establishing authority and responsibility relationships to facilitate effective collaboration in achieving enterprise objectives. In a broader context, organizing involves arranging resources like manpower, materials, machines, and money needed by an enterprise to reach its goals. In a more specific operational sense, organizing entails defining the duties and responsibilities of employees and determining how their activities should be interconnected. 
• The ultimate outcome of organizing is the establishment of a structure outlining the duties and responsibilities of individuals in various positions, grouped based on the similarity and interrelated nature of their tasks. In essence, organizing results in the formation of an organization, where a group of people collaborates to achieve common objectives. According to Robins, an organization is a consciously coordinated social entity with a distinct boundary, operating continuously to accomplish shared goals. 
• In summary, an organization is both an economic and social entity where individuals work collectively to achieve predetermined goals, fulfilling personal objectives like socioeconomic satisfaction that may be challenging to attain individually. It functions as a systematically designed structure that enables participants to work efficiently toward a common goal.

The characteristics of an organisation are as follow:

• Group Formation: An organization comes into existence when a collective of individuals collaborates for a shared purpose and actively contributes to their joint endeavors.
• Work Division: The establishment of an organization entails breaking down the overall workload into various activities and functions, and allocating tasks to individuals based on their skills, abilities, and experience.
• Shared Purpose: Each organization originates from the enterprise's goals, distinct from the personal objectives of its employed individuals. The organization's common purpose forms the foundation for cooperation among its members.
• Vertical and Horizontal Relationships: Organizations foster cooperative relationships within different departments and divisions, as well as between superiors and subordinates. Various functions and activities, such as production, marketing, and finance, are integrated to ensure effective coordination. The duties and responsibilities of superiors and subordinates in each department or division are also unified to serve the purpose of their collaborative efforts.
• Chain of Command: The relationships between superiors and subordinates in an organization are structured based on authority flowing from higher levels of management to lower levels, creating a hierarchical chain known as the chain of command. This chain also dictates the communication lines within the organization.
• Organizational Dynamics: In addition to the structural relationships grounded in activities and functions, organizations involve interactions shaped by the sentiments, attitudes, and behavior of individuals and groups. These relational aspects contribute a dynamic element to organizational functioning, susceptible to change over time.

Importance of Organisation

Effective organization is crucial for the sustained success of an enterprise, and its significance is outlined below:

• Facilitates Administration: A well-structured organization aids management in consistently aligning resource flows with overall objectives. It serves as a foundation for performing planning, direction, coordination, motivation, and control functions.
• Facilitates Growth and Diversification: Sound organization supports organizational expansion and diversification. Clear division of work and proper delegation of authority contribute to growth. As the organization grows, a more flexible decentralized structure can replace functional types.
• Permits Optimum Use of Resources: A sound organization allows the optimal utilization of technical and human resources. It enables the incorporation of the latest technological advancements and facilitates the best use of human efforts through specialization. Moreover, it promotes people development through training and promotion opportunities, providing strength to meet evolving needs.
• Stimulates Creativity: Specialization, clear lines of authority, and responsibility provided by a sound organizational structure empower managers to focus on crucial issues, fostering creativity among individuals.
• Encourages Humanistic Approach: Organizations that promote a humanistic approach facilitate teamwork and avoid treating employees as mere robots or machines. Job rotation, enlargement, and enrichment are incorporated to suit human needs, making jobs meaningful and interesting. Efficient methods for employee selection, training, remuneration, and promotion, along with delegation and decentralization, contribute to higher job satisfaction.

While recognizing the importance of organizational structure, it's crucial to note that a sound structure alone doesn't guarantee success. According to Drucker, a good organizational structure, like a good constitution, doesn't guarantee outstanding performance. However, a poor organizational structure makes achieving good performance impossible, regardless of individual capabilities.

Steps in the Organisation Process

The process of organizing involves a series of interconnected steps:

• Defining Objectives: Organization is closely tied to specific objectives, making it imperative for management to identify these objectives before initiating any activity. Clear objectives guide the management and workers, fostering unity of direction within the organization.
• Identification and Grouping of Activities: To ensure effective collaboration among group members, there must be a proper division of major activities. Each job should be accurately categorized and grouped, enabling individuals to understand their roles within the group and avoiding redundant efforts. For example, within an industrial organization, overarching functions like production, purchasing, marketing, and financing can be further subdivided and classified.
• Assignment of Duties: Once activities are classified and grouped into various jobs, they should be assigned to individuals based on their capabilities. Each person should be given a specific job, along with the responsibility for that task. Adequate authority should also be granted to enable effective task completion.
• Establishing Relationships: With numerous individuals working in the organization, management bears the responsibility of defining the structure of relationships within the organization. Clarity regarding accountability ensures smooth operations by facilitating the delegation of responsibilities and authority.
• Integration of Activity Groups: Integration across all activities is essential and can be achieved through various means, including authority relationships (horizontal, vertical, and lateral) and organized information or communication systems. Effective coordination and communication contribute to achieving unity of objectives, fostering teamwork, and cultivating team spirit among different activities.

Principles of Organisation

The principles of organization serve as guidelines for designing an efficient organizational structure.
Let's delve into the essential principles:

• Unity of Objectives: An enterprise aims to achieve specific objectives, requiring the organization and its parts to be aligned with these goals. Every member should understand and work towards these common objectives, ensuring a concentrated effort on set goals.
• Division of Work and Specialization: Work within the organization should be divided to assign each individual to a specific job, promoting specialization for increased efficiency and quality. Specializations, though distinct, should be coordinated for overall integration.
• Definition of Jobs: Each position in the organization should have a clear definition in relation to others, with well-defined duties, responsibilities, and relationships to prevent overlapping functions.
• Separation of Line and Staff Functions: Whenever possible, separate line functions, crucial for achieving main objectives, from staff activities, such as personnel and plant maintenance, which support these functions.
• Chain of Command or Scalar Principle: Clear lines of authority should run from the top to the bottom of the organization to facilitate delegation and decision-making. This is known as the scalar principle or the chain of command.
• Parity of Authority and Responsibility or Principle of Correspondence: Authority should correspond to responsibility, ensuring that each subordinate has sufficient authority to fulfill their entrusted responsibilities.
• Unity of Command: Each individual in the organization should report to a single supervisor to avoid confusion, conflicts, and lack of action. The principle is known as unity of command.
• Unity of Direction: Activities with a common goal should be managed by one person, ensuring a single head and plan for various activities working towards a common objective.
• Exception Principle: Higher-level managers should handle exceptional matters, while routine decisions are best made at lower levels. Policy decisions and unusual matters should be referred to higher levels.
• Span of Supervision: Managers or supervisors should not be burdened with supervising more subordinates than they can effectively manage within the limits of time and ability.
• Principle of Balance: A proper balance should be maintained between different parts of the organization, as well as between centralization and decentralization, span of supervision, lines of communication, and authority at various levels.
• Communication: Effective communication is crucial for organizational success. While the line of authority provides channels, a robust communication network, built on confidence and two-way communication, ensures the organization operates effectively.
• Flexibility: The organization's structure should be flexible, allowing easy and economical adaptation to changes in business nature and technological innovations without disrupting the basic design.
• Continuity: The organization structure should be designed to endure and adapt to changes over time, reflecting the evolving nature of the business environment while maintaining its ability to achieve long-term objectives.

Classical Theories of Organisation

Classical theories of organization refer to the older theories that originated from the works of influential figures like F.W. Taylor, Max Weber, James Moorey, E.F.L. Beach, and Lois Allen. These theories, developed between 1900 and 1950 AD, had a significant impact and are categorized into three streams: Bureaucracy, Administrative Theory, and Scientific Management. All three streams share similar assumptions and collectively contribute to the concept of organizational structure. Within classical theory, an organization is perceived as a mechanistic structure, encompassing relationships, power dynamics, objectives, roles, activities, and communication.
The components of classical theory collectively define organization as a structured framework where individuals collaborate:

Bureaucracy

• Bureaucracy, devised during the industrial revolution, is a social invention designed to structure and oversee the operations of a firm. It refers to a system where the government is managed by officials, either directly or indirectly. Max Weber (1864-1920) systematically developed the bureaucratic theory, defining it as an ideal type of organization. In this framework, roles, tasks, and relationships within an organization are clearly defined, closely regulated, and controlled in accordance with formal authority. Weber emphasized that bureaucratic structures, characterized by specialization and systematic rules, achieve the highest efficiency and are the most formally rational means of control within an organization. According to him, every organization comprises a structure of activities directed toward specific objectives, employing specialization and rules to enhance efficiency and productivity.
• Weber identified factors contributing to the growth of bureaucracy, including the development of modern organizations and corporations. Despite its inherent drawbacks, bureaucracy is deemed essential for the functioning of complex organizations. Additionally, the expansion of technical knowledge and modern technology plays a crucial role in fostering bureaucratic specialization. Weber also underscored the impact of capitalism, asserting that a stable state and well-organized administration are vital for the proper functioning of a capitalist system. Capitalism, in turn, is considered the most rational economic foundation for bureaucratic administration.

Characteristics of Bureaucracy
The bureaucratic organizational form is characterized by specific structural and behavioral features:

• Division of Labour and Specialization: Bureaucracy relies on specialization through the division of labor, focusing more on job roles than individual capabilities. Clear roles for officials are defined based on the division of work, leading to well-defined job content and organizational goals. This clarity aids in designing the hierarchical structure, involving a specified sphere of competence with defined authority and means of compulsion.
• Hierarchy: Bureaucracy features a clear hierarchy, with distinct separation between superior and subordinate officers. Lower-ranking officers are under the control and supervision of higher-ranking ones. Remuneration is determined by job nature and responsibility grade, and promotions are based on both seniority and merit.
• Rules: Bureaucracy operates according to a consistent system of abstract rules. Emphasized by Weber, rules prevent personal favoritism, arbitrariness, or nepotism from hindering organizational functioning. Personal discretion must be justified by impersonal ends, ensuring objective decision-making.
• Rationality: Weber's ideas on efficiency and rationality align closely with the bureaucratic model. Bureaucracy is considered the most rational means of achieving control over human beings, as it ensures a high degree of efficiency through objectively chosen means toward desired ends. Rationality is enhanced by the reliance on rules, minimizing the impact of personal whims and traditional pressures.
• Impersonality: Decision-making and overall organizational conduct in bureaucracy are characterized by impersonality. There is no room for personal whims, irrational sentiments, or subjective influences. Official activities are conducted in a business-like manner, emphasizing operational impersonality.
• Rule Orientation: Rationality and impersonality are maintained through the formulation of rules and procedures that define official spheres of authority and conduct. Employees are expected to adhere to these rules in the discharge of their duties.
• Neutrality: Bureaucracy upholds the principle of neutrality in decision-making and implementation. It is expected to be politically neutral, committed solely to the work it is designed to perform. The bureaucratic system aims to remain impartial and objective in its orientation.

Criticism of Bureaucracy
Max Weber's normative model, while suitable for any large and complex organization, often faces shortcomings in actual bureaucratic practices. Bureaucracy, deemed a necessary evil in large and complex organizations, is critiqued for various demerits by scholars:

• Rigidity: A rigid bureaucratic structure, while aiming for perfection, can stifle innovation, hindering the adaptability of an evolving organization. Excessive reliance on rules may suppress initiative, leading to organizational obsolescence.
• Impersonality: Bureaucracy emphasizes secondary and contractual relationships, contradicting the desirable primary and personal nature of organizational interactions. Lack of personal involvement can result in lower productivity levels.
• Delegation: Bureaucratic structures often face criticism for concentrating power at higher levels, hindering the delegation of authority and responsibilities. This lack of delegation can lead to unnecessary delays in organizational decision-making.
• Goal Displacement: Strict adherence to rules and regulations may lead to goal displacement, where the focus shifts from achieving goals to following procedures. This adherence, irrespective of goal achievement, can impede organizational effectiveness.
• Strict Categorization: Bureaucracy's emphasis on coordination and specialization relies on strict categorization, which becomes dysfunctional when attempting to categorize an adaptive and ever-changing world. Bureaucracy struggles with the realization that complete categorization is unattainable.
• Self-perpetuation and Empire Building: Bureaucrats may perceive holding office as personal ownership, leading to self-perpetuation tendencies that discourage innovation. Bureaucracies, once fully established, become resistant to destruction even when they have outlived their usefulness. The desire for prestige and pay often drives bureaucrats to increase the number of subordinates, fostering empire building.
• Cost of Controls: The maintenance of numerous rules, regulations, and procedures for conformity in bureaucracy incurs a significant cost. Excessive restrictions and delays imposed by bureaucratic procedures can lead to frustration among individuals within the organization.

Administrative Theory

• Scientific management, initially focused on enhancing individual workers' productivity on the shop floor, overlooked the role of managers and their functions in the overall organization. In the early 20th century, Henri Fayol, the director of a French coal mining company, conducted a systematic analysis of the management process, introducing the Process or Functional Approach.
• Fayol identified six interdependent operations within organizational activities: technical, commercial, financial, security, accounting, and administrative or managerial operations. Unlike previous thinkers, he emphasized the managerial activities and skill requirements, defining the management process as having universal application. Fayol identified five essential elements of the management process: forecasting and planning, organizing, commanding, coordinating, and controlling.
• Management, according to Fayol, involved the application of skills that could be acquired through systematic instruction and training. These skills were seen as applicable across various institutions, including churches, schools, political organizations, and industries.
• In addition to analyzing the management process and functions, Fayol formulated fourteen flexible principles as guidelines for management implementation. These principles were intended to be universally applicable, offering guidance to managers in diverse circumstances. Fayol asserted that the required skills and abilities for effective management varied based on the manager's position within the organization. Administrative skills were deemed more crucial for higher-level managers, while technical abilities were emphasized for lower-level positions. Fayol also highlighted the necessity of formal education and training in management, emphasizing its importance across different walks of life. In summary, Fayol's analysis provides a framework for understanding the management process and offers principles for its implementation.

Let's review the principles proposed by Fayol:

• Division of work
• Authority and Responsibility
• Discipline
• Unity of command
• Unity of Direction
• Subordination of individual interest to general interest
• Remuneration of Personnel
• Centralization
• Scalar Chain
• Order
• Equity
• Stability of Tenure
• Initiative
• Esprit de corps

The Administrative Theory of Management and the Functional Approach to management can be seen as evolving from Fayol's foundational work. Fayol established a conceptual framework for analyzing the management process, isolating and examining management as a distinct and separate activity. His analysis of universally relevant managerial skills and the general management principles significantly contributed to the body of knowledge in management. While some critics labeled it inconsistent, vague, and pro-management, Fayol's contributions have had a lasting impact.

Scientific Management

• The scientific management approach, developed by F.W. Taylor and others between 1890 and 1930, aimed to scientifically determine the most efficient methods for task performance, as well as the selection, training, and motivation of workers. Frederick Winslow Taylor, often considered the father of scientific management, along with contributors like Frank Gilbreth, Lillian Gilbreth, and Henry Gantt, focused on optimizing the utilization of human resources in industrial organizations, particularly at the shop floor level.
• Taylor, an engineer by profession, revolutionized the management system by relying on production line time studies instead of traditional work methods. He conducted detailed analyses of steelworkers' movements on various jobs, breaking down each task into its components. Using time studies as a foundation, Taylor designed the quickest and most effective methods for performing each task, determining the optimal work rate for employees with the available equipment and materials. He encouraged employers to pay more productive workers at a higher rate, establishing what he called the "differential rate system." This system incentivized workers to surpass their previous performance standards to earn higher wages.
• The legacy of scientific management extends beyond industrial settings, as its efficiency techniques have been applied to a wide range of tasks in non-industrial organizations, including fast-food service and surgeon training. Taylor's relentless pursuit of improved efficiency through careful scientific analysis advocated for an inductive, empirical, and detailed study of each job to identify the best way to organize work.
• Taylor's concept of scientific management was fundamentally centered on applying a scientific approach to replace trial-and-error and rule-of-thumb methods in management.
  The key objectives of this new approach included:
  • Developing and using scientific methods to establish work standards, determine a fair day's work, and identify the best ways of performing tasks.
  • Scientifically selecting and placing workers based on their suitability for specific tasks, along with providing training and development for maximum efficiency.
  • Establishing clear-cut divisions of work and responsibilities between management and workers.
  • Cultivating harmonious relations and close cooperation with workers to ensure that work is performed according to planned jobs and tasks.
• Several techniques were developed to support scientific management, including:
• Time study to analyze and measure the time required for various job elements, standardizing operations, and determining a fair day's work.
• Motion study involving close observation of job-related movements to eliminate wasteful motions and identify the best way to perform tasks.
• Standardization of tools, equipment, machinery, and working conditions.
• Incentive wage plans with differential piece rates for efficient and inefficient workers.
• Functional foremanship, where different specialist foremen supervise machine speed, group work, repairs, etc.
• Taylor presented his ideas systematically, making significant contributions to management practices.
  His key contributions included:
  • Emphasizing the importance of applying scientific methods like inquiry, observation, and experimentation to management problems.
  • Advocating for the separation of planning from execution to enable workers to perform at their best and earn accordingly.
  • Highlighting the management aim of maximizing both employer prosperity and employee welfare.
  • Stressing the need for a complete mental revolution among both workers and management, promoting harmony and cooperation instead of individualism and discord to realize the benefits of scientific management.

Merits

• The primary advantage of scientific management lies in the efficient conservation and proper utilization of every unit of energy. Specialization and the division of labor, stemming from scientific management, have played a pivotal role in the second industrial revolution. 
• Time and motion techniques serve as crucial tools for organizing tasks in a more effective and rational manner. In essence, scientific management not only offers a rational approach to solving organizational problems but also contributes to the professionalization of management.
• While the fundamental principles of scientific management were initially formulated by Taylor, his associates such as Gantt, Frank and Lillian Gilbreth, and Emerson further expanded on these ideas, developed new techniques, and enhanced the management approach. 
• In practical terms, scientific management proved highly fruitful in enhancing productivity and operational efficiency, gaining widespread acceptance in the USA and Western Europe.

Limitations

• Scientific management faces criticism on various fronts. Some argue that it focuses solely on the technical efficiency of workers and places undue emphasis on production. It presupposes that workers are inherently lazy, necessitating strict supervision and managerial authority. 
• The approach tends to believe that monetary rewards alone can motivate workers, neglecting the social and psychological aspects of the work environment. Other critics label it as unscientific, antisocial, psychologically unfair, and anti-democratic. The criticism of being unscientific stems from the lack of a valid and reliable method to measure worker efficiency and wages. It is considered antisocial as workers are treated as mere economic tools. 
• From a psychological standpoint, it is deemed unfair as it fosters unhealthy competition among workers for greater earnings. Lastly, it is viewed as anti-democratic as it undermines worker independence. Trade unions oppose scientific management, contending that it leads to autocratic management, increases employee workload, and negatively impacts employment opportunities.